Pulling the Wraps Off Koch Industries

By LESLIE WAYNE

Published: November 20, 1994

Correction Appended

WICHITA, Kan.—
Charles G. Koch likes to keep things simple. He built his empire on a windswept prairie far from city life: It's a sprawling glass-and-granite office complex, the largest in Kansas, and looks like a black box rising from an empty plain. Engineers with earnest faces and trim haircuts ply the halls of this diversified energy concern. There's no executive dining room, just a company cafeteria. And every day, Mr. Koch, one of the world's richest men, stands in the lunch line just like any of his 2,000 employees here, and waits patiently to buy his meal.

Hard to tell, but Koch Industries is the nation's second-largest privately held company, after Cargill, the grain merchant. With $23 billion in sales and 13,000 employees across the globe, Koch (pronounced coke) is an energy gusher of refineries, gas pipelines, oil trading, chemicals, cattle ranches and, increasingly, financial services. As a supplier of raw commodities, Koch has no retail identity, but its reach is broad -- even the surface of the tennis courts at the U.S. Open comes from Koch.

By design and desire, the 59-year-old Mr. Koch remains equally hidden. Despite a $4.7 billion fortune shared with a brother, David, Mr. Koch is one of the least-known billionaires of global standing -- richer than such visible men of wealth as Ross Perot and Rupert Murdoch.

But that is changing. Trying to keep Koch Industries under wraps, say Koch executives, is akin to trying to hide an elephant behind a telephone pole. The company, of course, would prefer to remain hidden: "I don't want to dedicate my life to getting publicity," said Mr. Koch, in his office on the bleak outskirts of Wichita. Events, though, are conspiring to pull the wraps away.

The mere scope of the company's operations has become too big to ignore. And the tale of how Charles Koch singlehandedly took a jumble of oil assets and turned them into a leading American energy company is compelling. Besides, the company learned the perils of secrecy when a Senate committee, several years back, accused it of stealing oil from the Indians -- and, for the first time, Koch Industries needed public relations to spread its denial. With new lines of business in the works, some of them riskier and more visible, there's a new openness, however slow in coming.

More to the point, Koch Industries is gaining notoriety, wanted or not, from the culmination of a nine-year legal attack from Charles's disgruntled younger brother William, defender of the America's Cup and a businessman who just lost $60 million in a failed attempt to rescue the Kendall Square Research Corporation, a supercomputer company. William claims that Charles and Koch Industries shortchanged him and a group of former Koch shareholders by, well, $1 billion many years ago, and he's filed suit in Wichita to collect.

With enough legal briefs to support an army of lawyers, the case could come to trial next year here. The four Koch brothers are divided into two warring camps. Charles is joined by David, 54, a New York-based Koch executive and dashing bachelor who is a heavy contributor to conservative causes. Attacking them are William, who is David's fraternal twin, and the reclusive Frederick, 61, a man more interested in art than oil, who has retreated to Monaco where he is a cultural patron.

In the annals of family business battles, the Koch brothers are legendary and their actions show that fabulous wealth and fierce emotions can be a volatile mix. This combination tore apart the Bingham newspaper dynasty of Louisville and pitted Herbert H. Haft, founder of the Dart Group, against a son, daughter and ex-wife. While Charles Koch isn't thrilled about losing $1 billion -- although company executives say a check that size would only slow them a bit -- it's really emotions that matter. The lawsuit, Charles says, reflects a "vindictive fantasy" and "dangerous obsession" by William, who, he adds, "has dedicated his life and made it his No. 1 objective to destroy his family and Koch Industries.

"Anybody with his obsession, combined with his money and a certain intelligence and cleverness, is dangerous," said Charles. "This isn't something we take lightly. He has been terrorizing us. These are not toy cannons. Whatever victory he gets, it pumps him up and he wants more blood. This will be a lifetime thing."

William says he's motivated by business, not blood. "Charles cheated me," said William, in an interview in New York. "It's the principle. None of us are sympathetic from the standpoint of wealth. The only difference is that you have one brother cheating another and morally, that's wrong. I sold my stock to Charles for half of what it's worth and I want my money back."

The sale in question took place in 1983 after an attempt at a palace coup at Koch Industries, led by William, was exposed. William was given $470 million to turn in his Koch stock and, in effect, get lost. Now he, along with his fellow conspirator, Frederick, who received $320 million for his Koch shares, say they were duped. They claim Charles and the company hid valuable assets from them and their blue-chip advisers, Goldman Sachs & Company and Bain & Company, and that the two brothers should have received double what they got.

Correction: December 4, 1994, Sunday A picture caption on Nov. 20 with an article about Koch Industries misstated the approximate date of a photograph of the Koch brothers at the Massachusetts Institute of Technology. It was taken in the late 1960's, not the late 1950's.